23rd Feb 2006 09:05
Mandarin Oriental International Ld23 February 2006 To: Business Editor 23rd February 2006 For immediate release The following announcement was today issued to the London Stock Exchange. MANDARIN ORIENTAL INTERNATIONAL LIMITED2005 PRELIMINARY ANNOUNCEMENT OF RESULTS Highlights • Increasing room rates drive earnings growth • Gains from sale of ownership - Hawaii hotel in 2005 - The Mark, New York in 2006 • Eight new hotels under development "Markets are expected to remain favourable in 2006 with room rates benefitingfurther from growing demand and limited new supply. While the temporary closureof Mandarin Oriental, Hong Kong will inevitably affect the Group's results, theeffect will be partially offset by increasing contributions from new properties. With its sound financial footing, significant hotel ownership interests andincreasing brand awareness, Mandarin Oriental is well positioned to continue itssuccessful expansion." Simon Keswick, Chairman23rd February 2006 Results______________________________________________________________________________ Year ended 31st December Restated 2005 2004 Change US$m US$m %______________________________________________________________________________Combined total revenue of hotels under management 815.4 667.3 +22Earnings before interest, tax, depreciation and amortization(1) 124.0 99.0 +25Profit attributable to shareholders - excluding gain on Hawaii disposal 41.1 28.5 +44Profit attributable to shareholders 77.2 28.5 +171Funds from operations(2) 90.4 40.6 +123______________________________________________________________________________ USc USc %______________________________________________________________________________Earnings per share - excluding gain on Hawaii disposal 4.33 3.35 +29Earnings per share 8.14 3.35 +143Funds from operations per share(2) 9.53 4.77 +100Dividend per share 1.50 1.00 +50______________________________________________________________________________ US$ US$ %______________________________________________________________________________Net asset value per share 0.87 0.80 +9Net asset value per share with leasehold properties at valuation(3) 1.50 1.37 +9______________________________________________________________________________(1) EBITDA does not include gains on disposal and the impact of property revaluations.(2) Funds from operations ('FFO') figures have been presented to provide additional information to investors to facilitate comparison with other hotel companies with substantial real estate interests. FFO is defined as profit attributable to shareholders excluding depreciation of hotel buildings, net of relevant deferred tax and minority interests.(3) The net asset value per share with leasehold properties at valuation has been presented after adjusting for the market value of the Group's leasehold interests. International Financial Reporting Standards ('IFRS') do not permit leasehold interests of owner-occupied land to be carried at valuation. The Group considers that the IFRS treatment does not reflect the economic substance of its underlying property investments. Therefore, the Group has presented the net asset value per share taking into account the fair market value of leasehold interests as supplementary financial information in addition to the net asset value per share in accordance with IFRS.______________________________________________________________________________The final dividend of USc1.50 per share will be payable on 21st June 2006, subject to approval at the Annual General Meeting to be held on 14th June 2006, to shareholders on the register of members at the close of business on 17th March 2006. The ex-dividend date will be on 15th March 2006, and the share registers will be closed from 20th to 24th March 2006, inclusive. MANDARIN ORIENTAL INTERNATIONAL LIMITED PRELIMINARY ANNOUNCEMENT OF RESULTSFOR THE YEAR ENDED 31ST DECEMBER 2005 OVERVIEW Mandarin Oriental made good progress in its development strategy in 2005 withthe opening of two additional hotels and the announcement of a number of newmanagement contracts. Operationally, the Group's results benefited fromincreasing room rates as demand in many cities strengthened, particularly inHong Kong. PERFORMANCE Earnings before interest, tax, depreciation and amortization for 2005 wereUS$124 million, after some US$11 million of pre-opening costs related to Tokyo,compared with US$99 million in 2004. Profit attributable to shareholders in 2005 was US$77 million, including apost-tax gain of US$36 million arising from the disposal of the Group's propertyinterest in Hawaii. Excluding the gain from this disposal, profit attributableto shareholders was US$41 million. This compares with US$29 million in theprevious year, which had benefited from a US$10 million investment writeback. Earnings per share for the year were USc8.14 including the Hawaii gain.Excluding the gain, earnings were USc4.33, compared with USc3.35 in 2004. The Group's net financing charges were reduced following the conversion of theGroup's 6.75% convertible bonds into shares in the early part of the year. Netdebt was also reduced significantly with the US$97 million proceeds from theHawaii sale. The Directors are recommending an increased dividend of USc1.50 per sharecompared with USc1.00 paid in 2004. The net asset value per share, with leasehold land adjusted to fair marketvalue, was US$1.50 at 31st December 2005, compared with US$1.37 at the prioryear end. GROUP REVIEW Significant profit increases were achieved at the Group's wholly-owned Hong Konghotels as they benefited from increasing demand and higher room rates. TheGroup's other subsidiary hotels also produced better results in the improvedtrading environment, including the recently opened property in Washington D.C.,which continued to establish its market position. Operating results fromassociates and joint ventures rose with stronger performances at MandarinOriental, New York, and at the Group's hotels in Singapore, Macau and Miami.The sale of the Group's 40% ownership interest in Kahala Mandarin Oriental,Hawaii was completed in June 2005, as a consequence of which the Group'smanagement of the hotel has come to an end. The sale of The Mark hotel in NewYork was completed in February 2006, and a gain of some US$35 million arisingfrom the disposal will be recognized in the results of 2006. The international visibility of the Mandarin Oriental brand has beenstrengthened considerably in recent years with the opening of select propertiesin key destinations and the renovation of existing flagships. DEVELOPMENTS Progress continued on the Group's development strategy to operate at least10,000 rooms in key city centre and resort destinations worldwide. The Groupoperates 21 hotels around the world with a further eight hotels underdevelopment, representing a total of some 8,500 rooms. In December 2005, Mandarin Oriental, Tokyo opened and was well received in themarket place. This followed the successful opening of the Group's new hotel atThe Landmark in Hong Kong in August. In late 2005, the Group ceased to managethe Hotel Royal Monceau in Paris, but its developments in Prague and RivieraMaya, Mexico are due to open this year, with Boston following in 2007. Four new management contracts were announced in 2005 for luxury hotels currentlybeing developed in Chicago, Grand Cayman, Macau and Las Vegas. The Group hasalso recently announced that it will manage a luxury resort on Hainan Island inChina opening later this year. The Group's original flagship hotel, Mandarin Oriental, Hong Kong, closed at theend of December 2005 for a US$140 million renovation programme. The hotel willre-open all the public areas and 200 of the guestrooms in late August 2006,while the full complement of 503 rooms will be completed by year end. OUTLOOK In conclusion, the Chairman, Simon Keswick said, "Markets are expected to remainfavourable in 2006 with room rates benefiting further from growing demand andlimited new supply. While the temporary closure of Mandarin Oriental, Hong Kongwill inevitably affect the Group's results, the effect will be partially offsetby increasing contributions from new properties. With its sound financial footing, significant hotel ownership interests andincreasing brand awareness, Mandarin Oriental is well positioned to continue itssuccessful expansion." GROUP CHIEF EXECUTIVE'S REVIEW PROGRESS ACHIEVED Mandarin Oriental experienced a strong growth in earnings in 2005 as a result ofimproved room rates. The Group reached a level of profitability from operationslast achieved in the mid 1990's, prior to the Asian economic downturn. Overallresults were further enhanced by the contribution from the recently openedhotels in the Group's growing portfolio as well as the contribution from thesale of the Group's ownership interest in the Hawaii hotel. In February 2006,exceptional market conditions led to the Group's successful sale of The Mark,New York, the gain of which will be recognized in the 2006 results. Both ofthese transactions have significantly strengthened the Group's balance sheet. Our expansion accelerated in 2005 and we are well on our way to achievingMandarin Oriental's objective of operating 10,000 rooms in key globaldestinations. During the year, two new properties opened in Hong Kong and Tokyo,and four new management contracts were announced. In February 2006, we announcedanother management contract for a luxury resort on Hainan Island in China. TheGroup comprises a portfolio of 21 hotels in operation with eight hotels underdevelopment, giving a total of approximately 8,500 rooms around the globe. PERFORMANCE IN 2005 Set out below is a review of the Group's performance in 2005, with reference tothe following strategic objectives: • Consolidating our position as one of the best global luxury hotel groups • Improving our competitive position • Increasing the number of rooms under operation to 10,000 • Investing in our brand • Ensuring a strong cash flow and balance sheet 1. Consolidating our position as one of the best global luxury hotel groups Mandarin Oriental is enjoying global recognition as one of the world's most sought-after luxury hotel groups. Our hotels and resorts are committed to providing our guests with delightful experiences in luxurious surroundings, enhanced by unique oriental characteristics. As a consequence, the Group has garnered an impressive array of awards from respected publications and associations, and has achieved widespread media coverage around the world. Significantly, while individual hotels continue to be recognized amongst the world's favourites, Mandarin Oriental is increasingly being given recognition as a pre-eminent luxury brand. Amongst the many accolades, the New York based Luxury Institute's 2006 Customer Experience Survey positioned Mandarin Oriental as the number one luxury hotel group that delivers the 'Best Customer Experience'. Similarly, Conde Nast Traveler, US readers voted Mandarin Oriental the 'Best Business Hotel Group' in The Americas in their annual Business Awards Survey in October 2005 and eight Mandarin Oriental hotels were featured in the annual Readers Choice Awards in the November edition. The Group's spas in London, Bangkok, New York, Miami and Washington D.C. were awarded 'Best Urban Hotel Spa' in their locations in Spa Finder's Readers Choice Awards in November, while The Oriental, Bangkok's spa was voted 'Top Overseas Hotel Spa' by readers of Conde Nast Traveller, UK. The same readers voted Mandarin Oriental, Miami as 'Best Overseas Leisure Hotel' in The Americas, and Mandarin Oriental Hyde Park London as 'Best Leisure Hotel' in the UK in the annual Readers Travel Awards, October 2005. 2. Improving our competitive position As demand for luxury strengthened in most travel destinations, our hotels remained focussed on delivering to our guests the legendary service that sustains our strong competitive position. The year saw increases in revenue per available room (RevPAR) across all regions, excluding new hotels, with Asia up 21%, Europe up 7% and The Americas up 26% over the previous year. As a result, gross operating margins across the Group have improved significantly from 2004. The highlights of each region are as follows: Asia Hong Kong led the region with strong demand resulting in a significant improvement in rate. Mandarin Oriental's occupancy, at 81%, remained at a similar level to 2004, however the hotel's average room rate climbed by 22% to US$256. Food and beverage revenues were also buoyant, in line with the increased occupancy and the strengthening local economy. In late December 2005, Mandarin Oriental closed its doors to commence a US$140 million renovation designed to secure its position as one of the world's legendary hotels when it re-opens in late August 2006. Current average rates for luxury hotels in Hong Kong are still below the levels achieved in other major cities, and Mandarin Oriental should attain higher rates following renovation. In line with the importance the Group places upon personalized service, the vast majority of hotel staff will remain employed during the closure period and have been offered opportunities for training and personal development or seconded to work at sister companies within the Jardine Matheson Group in Hong Kong. At The Excelsior, occupancy remained steady year-on-year at 88%, but the hotel achieved a 22% increase in the average room rate with sustained demand from all market segments. The Excelsior's food and beverage revenues were also up 10% above 2004 levels. The Landmark Mandarin Oriental, which the Group operates under a management contract, opened to great acclaim in August and quickly established itself as an intimate, luxury lifestyle hotel achieving average rates in excess of US$400, a benchmark in the city. In less than six months after opening, the hotel was named 'City Hotel of the Year' in the UK Tatler Travel Awards 2006 as well as 'Best New City Hotel' in Andrew Harpers Hideaway Awards 2006. In Macau, the RevPAR increased by 22% with strong increases in the average room rate, offset by a decline in occupancy. In Southeast Asia, hotel results showed slight improvement but the market remained soft, particularly in Jakarta and Manila. In Singapore, The Oriental completed its full-scale renovation in May and has been repositioned as one of the city's top hotels, with a subsequent 52% increase in rates over the previous year. The Oriental, Bangkok remains one of the world's favourite legendary hotels and will celebrate its 130th anniversary this year. It continues to outperform the market, enjoying a strong financial performance and a commanding share of the high-end leisure business into Thailand. In December, Mandarin Oriental opened its 179-room hotel in Tokyo, and, while pre-opening costs of US$11 million impacted the Group's results in 2005, the property has quickly established itself within the top hotels in the city, commanding an average room rate of over US$500. Europe In London, Mandarin Oriental Hyde Park continued to be one of the city's best performing luxury hotels with an average room rate of US$643, a 4% improvement in local currency terms compared with 2004. Despite the impact of the terrorist attacks in the summer, the market showed great resilience and occupancy at the hotel remained virtually unchanged from the previous year. Mandarin Oriental, Munich, as the leading hotel in the city, achieved a solid performance with a 7% improvement in the average room rate. In Geneva, Mandarin Oriental was ahead of its competitive set with the market showing some recovery leading to a 15% increase in RevPAR over 2004. Mandarin Oriental no longer manages the Hotel Royal Monceau in Paris. The Group had intended to brand the property on completion of a full renovation which did not take place. The Americas Mandarin Oriental, Washington D.C., which opened in March 2004, performed well in its first full year of operation and is now well-established in the city. Occupancy was 60% compared with 44% in 2004 and the average room rate was US$290, up from US$249 in the previous year. Mandarin Oriental, New York's strong performance had a positive impact on the Group's results. This award-winning property achieved an occupancy of 72% at an average room rate of US$695, giving an overall increase in RevPAR of 48% over the previous year. The sale of The Mark hotel was completed in February 2006 for a gross consideration of US$150 million. The property, which was originally acquired in 2000 as part of the US$143 million acquisition of The Rafael Group, continues to be managed under a short-term management contract. The Group's other US-based hotels performed well as a result of the general improvement in market conditions, with RevPAR increases of 19% in Miami and 15% in San Francisco. Following the sale of its ownership interest in Hawaii, Mandarin Oriental's management of the property has come to an end. 3. Increasing the number of rooms under operation to 10,000 Mandarin Oriental is now well on its way to reaching its goal of operating at least 10,000 rooms in major cities and resort destinations around the world, with approximately 8,500 rooms currently in operation or under development. As a consequence of the strength of our brand worldwide, the Group has a significant pipeline of development opportunities under review and we remain confident of reaching our goal within the next few years. Over the past 12 months, we have announced five management contracts for new Mandarin Oriental hotels in Chicago, Grand Cayman, Las Vegas, Macau and Hainan Island in China. This continued trend towards securing management contracts, which requires limited capital from the Group, is a clear indication of the growing strength of our brand. Noticeably, a number of these new projects will include a residential component: The Residences at Mandarin Oriental. The following new properties are planned to open over the next four years: 2006 • Mandarin Oriental Riviera Maya, Mexico: a unique hideaway resort featuring 128 villas on the secluded Riviera Maya coastline, south of Cancun. • Mandarin Oriental, Prague: a 98-room hotel located in the heart of this historic city in the Czech Republic. • Mandarin Oriental, Sanya: an exclusive 292-room luxury resort on Hainan Island in the South China Sea. 2007 • Mandarin Oriental, Boston: a 149-room hotel which will be housed within a mixed-use complex in the heart of the city. 2008 • Mandarin Oriental, Grand Cayman: an intimate 114-room hideaway, set on an unspoiled 10-acre beachfront site. 2009 • Mandarin Oriental, Chicago: a 250-room hotel occupying the top 15 floors of a new 90-storey tower which will be an exclusive mixed-use development in Chicago's growing Millennium Park neighbourhood. • Mandarin Oriental, Las Vegas: a 400-room hotel in the multi-billion dollar urban development 'Project CityCenter' created by MGM MIRAGE. • Mandarin Oriental in Macau: a second property in Macau which will be part of a prestigious mixed-use complex on the waterfront, featuring 210 rooms. While all of the above management contracts will provide an additional source of revenue for the Group, Mandarin Oriental intends to remain a significant owner of hotel assets, particularly in strategic city centre destinations. Such properties are often unique in their markets and provide the Group with an important source of capital appreciation over the long term. Ownership also gives us increased credibility with third party hotel developers, and ensures our long-term ability to shape our brand, creating legendary hotels that have the right mix of tradition, quality and innovation, under the umbrella of our oriental heritage. 4. Investing in our brand The investment behind our brand over the past few years has led to the Group becoming highly respected as a management company amongst our guests and the owners of luxury hotel developments around the world. Mandarin Oriental remains focussed on delivering the brand attributes which define our own style of luxury. This includes our expertise in holistic spa operations, innovative dining experiences, guest-orientated technology and creative hotel design and architecture. Most importantly, our increasingly visible brand and strong company culture motivates our employees to excel in delighting our guests. Investing in our 10,000 colleagues around the world remains essential to our success. Looking forward, our corporate resources provide us with a solid foundation on which to add further management opportunities. 5. Ensuring a strong cash flow and balance sheet A strong cash flow and balance sheet remains fundamental to our success. In 2005, the Group returned to performance levels last achieved in the mid 1990's, with a profit from operations of US$52 million, excluding the one-off US$11 million pre-opening expenses in Tokyo. As a result of the improved operating performance and the proceeds on sale of the Hawaii investment, cash flow grew to US$116 million before financing activities, which included US$24 million of funding, primarily in respect of the Tokyo and Boston projects. This compares with a cash flow of US$19 million before financing activities in 2004, which included US$30 million of investment in the Washington D.C. hotel. In early 2005, the Group's US$75 million, 6.75% convertible bonds were converted to equity resulting in the issue of 113 million ordinary shares which further strengthened our balance sheet. The Group's financial position is strong with gearing at 22% at 31st December 2005, down from 44% at the end of 2004 (based on adjusted shareholders' funds). Net debt has now been reduced by a further US$100 million, following completion of the sale of The Mark with an accounting gain of approximately US$35 million to be recognized in 2006. THE FUTURE In 2005, the Group performed well and the demand which drove these resultsshould continue in all key segments of the luxury market, barring unforeseenevents. The closure of Mandarin Oriental, Hong Kong for eight months will impactearnings in the short term, but the renovation will significantly enhance itscontribution to the Group's results. Looking forward, the Group is in a strong position to continue building itsbrand equity and translating this into profitable growth opportunities. We arefirmly on target to reach our ultimate goal of being recognized as the bestglobal luxury hotel group. Edouard EttedguiGroup Chief Executive23rd February 2006 _______________________________________________________________________________Mandarin Oriental International LimitedConsolidated Profit and Loss Accountfor the year ended 31st December 2005_______________________________________________________________________________ Restated 2005 2004 US$m US$m_______________________________________________________________________________ Revenue (note 2) 399.2 336.8Cost of sales (254.3) (224.7) ________ ________Gross profit 144.9 112.1Selling and distribution costs (23.7) (22.4)Administration expenses (60.8) (46.3) ________ ________Operating profit (note 3) 60.4 43.4Net financing charges (22.4) (27.5) ________ ________Share of results of associates and joint ventures excluding writeback of impairment 8.7 3.0Writeback of impairment of an associate - 9.6 ________ ________Share of results of associates and joint ventures (note 4) 8.7 12.6 Gains on disposal of associates (note 5) 52.3 - ________ ________Profit before tax 99.0 28.5Tax (note 6) (24.8) (4.8) ________ ________Profit for the year 74.2 23.7 ________ ________Profit attributable to shareholders 77.2 28.5Loss attributable to minority interests (3.0) (4.8) ________ ________ 74.2 23.7 ________ _______________________________________________________________________________________ USc USc_______________________________________________________________________________ Earnings per share (note 7)- basic 8.14 3.35- diluted 8.07 3.35 Earnings per share - excluding gain on Hawaii disposal- basic 4.33 3.35- diluted 4.30 3.35_______________________________________________________________________________ _______________________________________________________________________________Mandarin Oriental International LimitedConsolidated Balance Sheetat 31st December 2005_______________________________________________________________________________ Restated 2005 2004 US$m US$m_______________________________________________________________________________ Net assetsIntangible assets 215.5 219.4Tangible assets (note 8) 684.0 752.1Associates and joint ventures 205.0 258.6Other investments 5.1 6.4Loan receivable 12.0 -Pension assets 22.8 22.9Deferred tax assets 9.9 7.8Other non-current assets 5.5 - ________ ________Non-current assets 1,159.8 1,267.2 ________ ________Stocks 3.1 2.9Debtors and prepayments 59.0 57.9Cash at bank 169.1 65.7 ________ ________ 231.2 126.5Non-current asset classified as held for sale (note 9) 80.3 - ________ ________Current assets 311.5 126.5 ________ ________Creditors and accruals (80.3) (65.1)Current borrowings (note 10) (8.3) (85.7)Current tax liabilities (6.8) (8.0) ________ ________ (95.4) (158.8)Liabilities directly associated with non-currentasset classified as held for sale (note 9) (14.0) - ________ ________Current liabilities (109.4) (158.8) ________ ________ ________ ________Net current assets/(liabilities) 202.1 (32.3)Long-term borrowings (note 10) (471.6) (497.1)Deferred tax liabilities (49.8) (38.2)Pension liabilities (1.7) (1.7)Other non-current liabilities - (6.0) ________ ________ 838.8 691.9 ________ ________Total equityShare capital 48.3 42.6Share premium 158.8 89.0Revenue and other reserves 628.0 552.1 ________ ________Shareholders' funds 835.1 683.7Minority interests 3.7 8.2 ________ ________ 838.8 691.9 ________ _______________________________________________________________________________________ _______________________________________________________________________________Mandarin Oriental International LimitedConsolidated Statement of Recognized Income and Expensefor the year ended 31st December 2005_______________________________________________________________________________ Restated 2005 2004 US$m US$m_______________________________________________________________________________ Surplus on revaluation of properties 35.6 51.1Actuarial gains on defined benefit pension plans 0.6 4.4Net exchange translation differences (31.4) 20.0Loss on financial assets - (1.3)Gain/(Loss) on cash flow hedges 11.7 (1.9)Tax on items taken directly to equity (9.8) (18.2) ________ ________Net income recognized directly in equity 6.7 54.1Profit for the year 74.2 23.7 ________ ________Total recognized income and expense for the year 80.9 77.8 ________ ________Attributable to:Shareholders of the Company 84.6 82.8Minority interests (3.7) (5.0) ________ ________ 80.9 77.8 ________ ________Effect of prior period adjustments:Shareholders of the Company (1.0)Minority interests (0.1) ________ (1.1) _______________________________________________________________________________________ _______________________________________________________________________________Mandarin Oriental International LimitedConsolidated Cash Flow Statementfor the year ended 31st December 2005_______________________________________________________________________________ 2005 2004 US$m US$m_______________________________________________________________________________ Operating activities ________ ________Operating profit 60.4 43.4Depreciation 30.0 30.7Amortization of land use rights 0.6 0.6Non-cash items 3.0 0.4Movements in working capital (0.3) (1.8)Interest received 2.8 0.6Interest and other financing charges paid (26.3) (27.4)Tax paid (13.8) (8.0) ________ ________ 56.4 38.5Dividends and interest from associates and joint ventures 16.2 8.6 ________ ________Cash flows from operating activities 72.6 47.1 Investing activities ________ ________Purchase of tangible assets (40.0) (41.2)Investments in and loans to associates and joint ventures (1.0) (5.7)Advance of loan receivable (12.0) -Increase in other investments (0.9) (1.4)Purchase of minority interests (2.7) (0.5)Proceeds on disposal of other investments - 13.2Proceeds on disposal of associates 95.3 -Repayment of loans to an associate 4.1 7.2Capital distribution from an associate 0.5 - ________ ________Cash flows from investing activities 43.3 (28.4) Financing activities ________ ________Issue of shares 0.3 0.1Drawdown of borrowings 115.0 28.6Repayment of borrowings (116.5) (51.6)Dividends paid by the Company (note 12) (9.6) -Capital contribution from minority interests - 2.2 ________ ________Cash flows from financing activities (10.8) (20.7)Effect of exchange rate changes (2.0) 1.7 ________ ________Net increase/(decrease) in cash and cash equivalents 103.1 (0.3)Cash and cash equivalents at 1st January 65.7 66.0 ________ ________Cash and cash equivalents at 31st December 168.8 65.7 ________ _______________________________________________________________________________________ _______________________________________________________________________________Mandarin Oriental International LimitedNotes_______________________________________________________________________________ 1. ACCOUNTING POLICIES AND BASIS OF PREPARATION The financial information contained in this announcement has been based on the audited results for the year ended 31st December 2005 which have been prepared in conformity with International Financial Reporting Standards ('IFRS'), including International Accounting Standards and interpretations adopted by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies. The accounting policies adopted are consistent with those of the previous financial year. In 2005, the Group conducted a comprehensive review of the deferred taxation across the Group's hotel properties to ensure full compliance with IAS 12 Income Taxes. As a result, certain prior period adjustments have been made to conform more fully to IFRS. These adjustments are primarily to provide for deferred tax arising from fair value adjustments which had not previously been provided. In 2004, these adjustments resulted in an increase to profit attributable to shareholders of US$0.7 million. 2. REVENUE 2005 2004 US$m US$m ___________________ By geographical area: Hong Kong & Macau 161.5 143.9 Other Asia 38.3 28.9 Europe 106.8 100.6 The Americas 92.6 63.4 ________ ________ 399.2 336.8 ________ ________ 3. OPERATING PROFIT 2005 2004 US$m US$m ___________________ By geographical area: Hong Kong & Macau 37.3 33.7 Other Asia (6.4) 1.7 Europe 20.5 15.6 The Americas 9.0 (7.6) ________ ________ 60.4 43.4 ________ ________ 4. SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES 2005 2004 US$m US$m ___________________ By geographical area: Hong Kong & Macau 3.6 2.6 Other Asia 6.2 15.6 The Americas (1.1) (5.6) ________ ________ 8.7 12.6 ________ ________ The Directors have reviewed the carrying values of all operating properties owned by associates and joint ventures at 31st December 2005 in consultation with the Group's independent valuers. The Group's share of the underlying net revaluation surplus of US$4.6 million has been dealt with in the capital reserves (2004: net revaluation surplus of US$10.7 million to capital reserves, and net credit of US$9.6 million to the consolidated profit and loss account). The land and buildings owned by associates and joint ventures were revalued at 31st December 2004 by independent professionally qualified valuers on an open market basis. 5. GAINS ON DISPOSAL OF ASSOCIATES On 8th June 2005, the Group completed the sale of its 40% investment in the partnership that leases the Kahala Mandarin Oriental hotel in Hawaii to its 60% partner, Kahala Royal Corporation ('KRC'). The Group had exercised its put option in January 2005 pursuant to its rights under its partnership agreement with KRC. On completion, the Group received a gross consideration of US$97.1 million, which included the repayment of loans to an associate of US$4.1 million. The pre-tax gain on this disposal was US$50.3 million. After utilization of brought forward US tax losses, the post-tax gain on this disposal was US$36.1 million. In July 2005, the Group disposed of its investment in Reid Street Properties for a cash consideration of US$2.3 million. The post-tax gain on this disposal was US$2.0 million. 6. TAX Restated 2005 2004 US$m US$m ___________________ Current tax 12.7 9.1 Deferred tax 12.1 (4.3) ________ ________ 24.8 4.8 ________ ________ Tax on profits has been calculated at rates of taxation prevailing in the territories in which the Group operates and includes a tax charge of US$14.2 million (2004: nil) arising on disposal of the Group's 40% investment in Kahala Mandarin Oriental, Hawaii. This tax charge is calculated after utilizing brought forward tax losses in the United States of approximately US$65.1 million and comprises current tax of US$2.5 million and deferred tax of US$11.7 million on temporary differences (refer note 5). 7. EARNINGS PER SHARE Basic earnings per share are calculated on profit attributable to shareholders of US$77.2 million (2004: US$28.5 million) and on the weighted average number of 948.9 million (2004: 851.6 million) shares in issue during the year. The weighted average number excludes shares held by the Trustee of the Senior Executive Share Incentive Schemes. Diluted earnings per share are calculated on the weighted average number of 956.5 million (2004: 854.1 million) shares after adjusting for the number of shares which are deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes based on the average share price during the year. The convertible bonds were anti-dilutive and therefore ignored in calculating diluted earnings per share. The number of shares for basic and diluted earnings per share is reconciled as follows: Ordinary shares in millions 2005 2004 ___________________ Weighted average number of shares in issue 948.9 851.6 Adjustment for shares deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes 7.6 2.5 ________ ________ Weighted average number of shares for diluted earnings per share 956.5 854.1 ________ ________ The Group made certain prior year adjustments, the impact of which increased the 2004 basic and diluted earnings per share by USc0.09. The Directors consider funds from operations ('FFO') to be a supplemental measure of the Group's performance and believe this should be considered along with, but not as an alternative to, profit attributable to shareholders as a measure of the operating performance. FFO is defined as profit attributable to shareholders excluding depreciation of hotel buildings, net of relevant deferred tax and minority interests. Restated 2005 2004 ___________________ ___________________ Per share Per share US$m USc US$m USc Profit attributable to shareholders 77.2 8.14 28.5 3.35 Depreciation of buildings, net of deferred tax and minority interests 13.2 1.39 12.1 1.42 ________ ________ ________ ________ Funds from operations 90.4 9.53 40.6 4.77 ________ ________ ________ ________ 8. TANGIBLE ASSETS AND CAPITAL COMMITMENTS 2005 2004 US$m US$m ___________________ Opening net book value 752.1 687.1 Translation differences (49.1) 28.4 Additions 48.6 32.0 Disposals (0.1) - Transfer in 1.9 - Depreciation (30.0) (30.7) Revaluation surplus 27.8 35.3 Classified as non-current asset held for sale (67.2) - ________ ________ Closing net book value 684.0 752.1 ________ ________ Capital commitments 152.5 140.4 ________ ________ The Directors have reviewed the carrying values of all properties at 31st December 2005 in consultation with the Group's independent valuers. The Directors are of the opinion that there is an increase in the fair value of all properties of US$21.3 million net of deferred tax of US$6.5 million which has been taken to capital reserves. In 2004, a surplus of US$0.2 million was taken to the profit and loss account; and a surplus of US$23.1 million net of deferred tax of US$12.2 million was taken to capital reserves. The Group's freehold properties and the building component of leasehold properties were revalued at 31st December 2004 by independent professionally qualified valuers. Fair value was determined using the income capitalization approach and having reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm's length transaction as at the valuation date. If the freehold properties and the building component of leasehold properties had been included in the financial statements at cost, the carrying value would have been US$503.3 million (2004: US$595.6 million). No interest was capitalized during the year (2004: interest of US$1.3 million was capitalized based on rates ranging from 4.3% to 6.0%). Tangible assets include a property of US$114.2 million (2004: US$115.6 million), which is stated net of tax increment financing of US$31.5 million (2004: US$32.4 million) (refer note 11). 9. NON-CURRENT ASSET CLASSIFIED AS HELD FOR SALE An analysis of the non-current asset held for sale is as follows: 2005 2004 US$m US$m Intangible assets 5.2 - Tangible assets (refer note 8) 67.2 - Deferred tax assets 1.3 - Current assets 6.6 - ________ ________ Total assets 80.3 - ________ ________ Long-term borrowings (11.0) - Current liabilities (3.0) - ________ ________ Total liabilities (14.0) - ________ ________ The Group's 100% leasehold interest in The Mark, New York was classified as held for sale in 2005. At 31st December 2005, total assets and total liabilities amounted to US$80.3 million and US$14.0 million respectively. The sale was completed on 16th February 2006 for a consideration of US$150.0 million (refer note 13). 10. BORROWINGS 2005 2004 US$m US$m ___________________ Bank loans 470.4 488.8 6.75% convertible bonds - 75.3 Other borrowings 7.8 9.0 Finance lease - 8.0 Tax increment financing (refer note 11) 1.7 1.7 ________ ________ 479.9 582.8 ________ ________ Current - 6.75% convertible bonds - 75.3 - others 8.3 10.4 ________ ________ 8.3 85.7 Long-term 471.6 497.1 ________ ________ 479.9 582.8 The 6.75% convertible bonds of the Company were converted into ordinary shares in accordance with their terms resulting in the issue of a total of 113,062,580 ordinary shares of the Company. 11. TAX INCREMENT FINANCING 2005 2004 US$m US$m ___________________ Netted off against the net book value of property (refer note 8) 31.5 32.4 Loan (refer note 10) 1.7 1.7 ________ ________ 33.2 34.1 ________ ________ A development agreement was entered into by one of the Group's subsidiaries with the District of Columbia ('District'), pursuant to which the District agreed to provide certain funds to the subsidiary out of net proceeds obtained through the issuance and sale of certain tax increment financing bonds ('TIF Bonds') for the development and construction of Mandarin Oriental, Washington D. C. The District agreed to contribute to the subsidiary US$33.0 million through the issuance of TIF Bonds in addition to US$1.7 million issued in the form of a loan, bearing simple interest at an annual rate of 6.0%. The US$1.7 million loan plus all accrued interest will be due on the earlier of 10th April 2017 or the date of the first sale of the hotel. The receipt of the TIF Bonds has been treated as a government grant and netted off against the net book value in respect of the property (refer note 8). The loan of US$1.7 million (2004: US$1.7 million) is included in long-term borrowings (refer note 10). 12. DIVIDENDS No interim dividend has been paid in respect of 2004 and 2005. A final dividend in respect of 2005 of USc1.50 (2004: USc1.00) per share amounting to a total of US$14.5 million (2004: US$9.6 million) is proposed by the Board. The dividend proposed is not accounted for until it has been approved at the Annual General Meeting. The amount will be accounted for as an appropriation of revenue reserves in the year ending 31st December 2006. 13. POST BALANCE SHEET EVENT On 30th December 2005, the Group announced that it had entered into an agreement to sell its 100% leasehold interest in The Mark, New York for a gross consideration of US$150.0 million, receivable in cash. The hotel was originally acquired in 2000 as part of the US$142.5 million acquisition of The Rafael Group. The sale was completed on 16th February 2006. After transaction costs and tax, the post-tax gain arising on the disposal is estimated at US$35.0 million. Under the Group's accounting policies, the earnings before interest, tax and depreciation for The Mark (including management fees) for the year ended 31st December 2005 were US$3.6 million (2004: US$2.5 million). The Group's interest in the leasehold property as at 31st December 2005 was classified as a non-current asset held for sale. The Group will continue to manage the hotel until further notice. The final dividend of USc1.50 per share will be payable on 21st June 2006,subject to approval at the Annual General Meeting to be held on 14th June 2006,to shareholders on the register of members at the close of business on 17thMarch 2006. The ex-dividend date will be on 15th March 2006, and the shareregisters will be closed from 20th to 24th March 2006, inclusive. Shareholderswill receive their dividends in United States Dollars, unless they areregistered on the Jersey branch register where they will have the option toelect for Sterling. These shareholders may make new currency elections bynotifying the United Kingdom transfer agent in writing by 2nd June 2006. TheSterling equivalent of dividends declared in United States Dollars will becalculated by reference to a rate prevailing on 7th June 2006. Shareholdersholding their shares through The Central Depository (Pte) Limited ('CDP') inSingapore will receive United States Dollars unless they elect, through CDP, toreceive Singapore Dollars. For further information, please contact: Mandarin Oriental Hotel Group International LimitedEdouard Ettedgui/John R Witt (852) 2895 9288Jill Kluge/Sally de Souza (852) 2895 9167 Matheson & Co LimitedMartin Henderson (44) 207 816 8135 GolinHarrisKennis Young (852) 2501 7987 Weber Shandwick Square MileRichard Hews / Helen Thomas (44) 207 067 0700 Full text of the Preliminary Announcement of Results and the PreliminaryFinancial Statements for the year ended 31st December 2005 can be accessedthrough the Internet at 'www.mandarinoriental.com'. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Mandarin In.sg